volume xxvii, number 1 januar y-februar y 1997 i ssue … · which routinely results in the...

Focus on GAC:Voluntary Compl iance ........ 3

Guidance onSBJPA ’96 Amendments ...... 5

Learn ing Your ABCDs ........ 8

The In t e rne t and theEmployee Benef i t s Web ... 10

JBEA Advisory Commit teeReviews Exam Program .... 13

Chet Sa lk ind WinsHar ry T . E idson Award .... 14

Focus on ABCs.................... 20

Focus on ASPA PERF ....... 22

Calendar o f Even ts ............ 23

PIX Diges t ............................ 24

Washington UpdateActuary-Client Privilege

by Brian H. Graff, Esq.

If you have been following the news, youknow that the hottest thing on Capitol Hill thesedays is Internal Revenue Service restructuring.On November 5, the U.S. House of Represen-tatives passed (425-4) a bill overhauling gover-nance of the IRS. The bill would create a largelyprivate-sector management board at the IRS,consolidate congressional oversight of the IRS,and shift the burden of proof to the IRS in cer-tain civil tax cases, along with other provisionsenhancing taxpayers’ rights. Given the over-whelming vote in the House in favor of the bill,

Continued on page 19

Actuaries, Consultants, Administrators and Other Benefits Professionals

IN THIS ISSUE PWBA Investigations —Pitfalls and Opportunitiesby Martin M. Heming, APM, and C. Frederick Reish, APM

The Pension and Welfare Benefit Administration ofthe U.S. Department of Labor has increased its

investigations of qualified retirement plans. The most pub-licized of these involves the late deposit of employees’elective deferrals into 401(k) plans. In addition, the PWBAand the Internal Revenue Service have intensified theirefforts to coordinate their examinations. As a result, thePWBA and IRS have implemented a working relationshipwhich routinely results in the referral of cases from one to the

other. (A summary of the areas of coordinationprepared by IRS and PWBA representatives is onpage 17.)

This means that thechances of a PWBAinvestigation have sig-nificantly increased,as has the likelihoodthat the IRS will con-duct an audit of theplan based on aPWBA referral. APWBA investigationhas “traps” which canonly be avoided withexperienced advice. Itis possible to avoidthese pitfalls, like theERISA section 502(l)

penalty, while taking advantage ofthe opportunities offered by the IRSvoluntary programs to correct the taxqualification issues resulting fromproblems discovered during thePWBA investigation.

If, during the course of its inves-tigation, the PWBA discovers a fi-duciary breach or other ERISA TitleI violation, the PWBA routinely im-poses the ERISA section 502(l) pen-alty. ERISA section 502(l) providesfor a penalty of 20 percent of theamount recovered by the plan, pay-able to the government, on a fidu-ciary who breaches its duties or

VOLUME XXVII, NUMBER 1 ■ JANUARY-FEBRUARY 1997

Vol. XXVII, Number 6 November-December1997

2 ■ THE PENSION ACTUARY ■ NOVEMBER-DECEMBER 1997

American Society of Pension Actuaries, Suite 820, 4350 North Fairfax Drive, Arlington, Virginia 22203-1619Phone: (703) 516-9300, Fax: (703) 516-9308, E-mail: [email protected], World-Wide Web: http://www.aspa.org

The Pension Actuary is produced by the executive director and Pension ActuaryCommittee. Statements of fact and opinion in this publication, including editorialsand letters to the editor, are the sole responsibility of the authors and do not neces-sarily represent the position of ASPA or the editors of the Pension Actuary.

The purpose of ASPA is to educate pension actuaries, consultants, administra-tors, and other benefits professionals, and to preserve and enhance the private pen-sion system as part of the development of a cohesive and coherent national retirementincome policy.

Editor in ChiefBrian H. Graff, Esq.

Pension Actuary Committee ChairStephanie D. Katz, CPC, QPA

Pension Actuary CommitteeDonald MackanosChristine Stroud, MSPA

Staff EditorDouglas M. Burnette

Technical Review BoardLawrence Deutsch, MSPA

Henry J. Garretson, FSPA

Duane L. Mayer, MSPA

Marjorie R. Martin, MSPA

David E. Rogers, Esq.

Nicholas L. Saakvitne, Esq.

ASPA OfficersPresidentKaren A. Jordan, CPC, QPA

President-electCarol R. Sears, FSPA, CPC

Vice PresidentsSarah E. Simoneaux, CPCGwen S. O’Connell, CPC, QPACraig P. Hoffman, APM

SecretaryCynthia A. Groszkiewicz, MSPA, QPA

TreasurerJohn P. Parks, MSPA

Immediate Past PresidentRichard D. Pearce, FSPA, CPC


commits another violation of ERISA,such as a prohibited transaction.However, in most cases it is possibleto devise a strategy to avoid the sec-tion 502(l) penalty.

In addition, the asserted fidu-ciary breach or prohibited transactionmay violate both Title I of ERISAand the Internal Revenue Code. Ifthere are violations that the PWBAwill refer to the IRS, then actionshould be taken quickly to correct thedefect under an IRS voluntary pro-gram.

Recently, we worked with a third-party administrator on a PWBA in-vestigation which illustrates both thepitfalls and opportunities discussedin this article.

This case involved a manufac-turing company with a traditionalprofit-sharing plan. The plan in-vested about $900,000 of its $2 mil-lion in plan assets in several realestate limited partnerships. The part-nership interests were never ap-praised and were continuously shownon the Form 5500 at their original

CorrectionWith our apologies to the author, item 9 of “10 Pension Tidbits form

a Past President,” by Howard M. Phillips, MSPA, which ran in the Sep-tember-October issue of the Pension Actuary, should have read as fol-lows:

9. QDROs do not apply to IRAs

When there is to be a division of retirement plan assets between twospouses involved in a marital dissolution, a QDRO is usually used in orderto split the ownership of the qualified retirement plan asset. However, thequalified plan rules for QDROs (found in IRC section 414(p)) don’t applyto IRAs. Court domestic relations orders (DRO) will control the division,but will not necessarily satisfy all of the restrictions imposed on “quali-fied” orders. Although a distribution occurring as a result of a QDROfrom a qualified plan is exempt from the 10 percent premature distributionpenalty, if the distribution occurs before age 59½, that same exemptiondoes not apply to a distribution from an IRA account because of a DRO.However, IRC section 408(d)(6) allows the IRA holder’s spouse a tax-free rollover to a separate IRA.

Similarly, DROs under governmental and church plans escape mostof the qualified plan requirements for QDROs. But unlike IRAs whichare subject to the 10 percent penalty for DRO distributions, the govern-mental and church plan DRO distributions gain an exemption because ofthe specific definition in 414(p)(11) which deems the DRO in these situa-tions to be a “QDRO.”

The same cross-reference is used to allow the spouse or former spouseunder a governmental (or church) DRO to achieve a rollover.

NOVEMBER-DECEMBER 1997 ■ THE PENSION ACTUARY ■ 3

ASPA’s GAC has had several meetings with theInternal Revenue Service about expanding its vari-

ous self-correction programs. Based on these meetings, theIRS announced (Announcement 97-121) extension of theAPRSC self-correction period for significant defects fromone to two years. The announcement indicated that the IRSplans to issue a field directive to provide additional insighton the APRSC and to clarify certain aspects, includingtiming for correction. Based on additional discussions withASPA’s GAC, the IRS is planning further improvements toits various self-correction programs. For example, ASPAhas had discussions with the IRS about setting a fixed rangeof penalty amounts under Walk-In CAP for plans with formdefects that operationally comply.

The IRS also plans to publish aconsolidated guide to all the IRS vol-untary compliance programs. Theguide will include contact informa-tion for offices involved with thecompliance programs, which operateout of the Employee Plans and Ex-empt Organizations key district of-fices. In response to ASPA’s request,the IRS has provided the followinginterim list of IRS personnel thatASPA members may contact regard-ing the self-correction programs.This list was prepared by the IRSnational office, and they assure usthat ASPA members are welcome tocall. In addition, they indicated thatASPA members could discuss pos-sible correction methodologies withthe APRSC contacts.

FOCUS ON GOVERNMENT AFFAIRS

IRS Voluntary Compliance

Northeast RegionBrooklyn EP/EO Division(718) 488-2010Cathy Jones (CAC, Walk-In CAP)Chief, Review Staff(718) 488-2400, Fax: (718) 488-240510 Metrotech625 Fulton St.Brooklyn NY 11201

BuffaloStan Pustulka (CAS, Field CAP)(716) 551-3031, Fax: (716) 551-3060P.O. Box 425Niagra Square StationBuffalo NY 14201-0425

Southeast RegionBaltimore EP/EO Division(410) 962-3290Stewart Copeland (Walk-In Cap)(410) 962-3499Jerry Livingston (Field CAP)(410) 962-3195, Fax: (410) 962-0867EP Technical StaffP.O. Box 13163Baltimore MD 21203

Midstates RegionDallas EP/EO Division(214) 767-1490Al Dorevitch (CAC)(312) 886-1277, Fax: (312) 886-1080Zenobia Ford (Asst. CAC)(312) 886-4710, Fax: (312) 886-3275Group: 7106230 S. DearbornChicago IL 60604

Western RegionLos Angeles EP/EO Division(213) 894-3748Marianne Davis (Walk-In CAP)(213) 725-1852Steve Adler (Field CAP)(213) 725-2529, Fax: (213) 725-0676McCaslin Industrial Park2 Cupania CircleMonterey Park CA 91755

HeadquartersWashington, D.C. EP Division(202) 622-8300Carlton WatkinsHQ Coordinator, CAP, APRSC(202) 622-7567, Fax: (202) 622-5997CP:E:EP:P:2, Rm. 67021111 Constitution Avenue, NWWashington DC 20224

Closing Agreement Coordinators (CAC) and Closing Agreement Specialists (CAS)


APRSC Coordinators

Northeast RegionBrooklyn EP/EO Division(718) 488-2010Cathy JonesChief, Review Staff(718) 488-2400, Fax: (718) 488-240510 Metrotech625 Fulton St.Brooklyn NY 11201

Southeast RegionBaltimore EP/EO Division(410) 962-3290Judy Cook(410) 962-0075, Fax: (410) 962-0132EP Technical StaffP.O. Box 13163Baltimore MD 21203

Midstates RegionDallas EP/EO Division(214) 767-1490Robert WendellChief, EP Branch (CHI) (1)(312) 886-4700, Fax: (312) 886-3275230 S. DearbornMail Stop 4900CHIChicago IL 60604

Western RegionLos Angeles EP/EO Division(213) 894-3748Thelma Diaz(213) 725-1857, Fax: (213) 725-0676EP/EO Review SectionMcCaslin Industrial Park2 Cupania CircleMonterey Park CA 91755

HeadquartersWashington, D.C. Division(202) 622-8300Carlton WatkinsHQ Coordinator, CAP, APRSC(202) 622-7567, Fax: (202) 622-5997CP:E:EP:P:2, Rm. 67021111 Constitution Avenue, NWWashington DC 20224

ASPA Testifies at DOL Hearing onProposed Revised Form 5500

Joan Gucciardi, MSPA, CPC,was one of eight witnesses whotestified on behalf of ASPA at apublic hearing concerning the re-vised Form 5500 package pub-lished on September 3, 1997.Representatives from the Depart-ment of Labor, Internal RevenueService, and Pension BenefitGuaranty Corporation workedjointly to simplify and streamlinethe form’s reporting requirements,changes which many witnessesfound to be “a positive first step.”

Gucciardi, a member of theASPA board of directors, summa-rized ASPA’s written commentsby highlighting ASPA’s top fiverequests for the proposed 5500 se-ries forms:

v Issue the forms earlier andpublish the list of edit checks;

v Require the newly-created Di-rect Filing Entity to submit theSchedule D directly;

v Create an enforcementmechanism to ensure that allinsurance carriers providetimely and accurate informa-tion for completion of theSchedule A;

v Use the outside limit con-tained in the DOL regulationsregarding Schedule FIN, Line4a (the timing of the transmit-tal of participant contribu-tions); and

v Require that Schedule Q befiled each year.

Copies of the 17-page com-ment letter, written by the ASPAGAC Reporting and DisclosureSubcommittee, are available uponrequest from the ASPA office.

1997 ASPAAnnual ConferenceU.S. Rep. Earl Pomeroy (D-

N.D.) addresses ASPA’s AnnualConference in Washington,D.C., November 4. Look forhighlights from the conference inthe next issue of the PensionActuary.

What’s Your View?Letters to the editor can be sent to—

Pension ActuaryLetters to the EditorASPA, Suite 8204350 North Fairfax DriveArlington, Virginia 22203-1619

or by E-mail to —

[email protected]


REVENUE PROCEDURE 97-41

Guidance onSBJPA ’96 Amendmentsby Craig P. Hoffman, APM

When Congress passed the SmallBusiness Job Protection Act, it wasclear that all qualified retirementplans would need to be updated inorder to comply with the new law.To provide for an orderly amendmentprocess, SBJPA generally providesthat plans do not need to be updatedany earlier than the 1998 plan yearas long as there is operational com-pliance with any change that wouldbe required to preserve the plan’squalified status. Additionally, whenthe plan is ultimately updated, theamendment must be retroactively ef-fective and reflect how the plan wasoperated during the interim period.

In the months that have followedthe enactment of SBJPA, there hasbeen some controversy over whatCongress intended with regard toplan amendments. Several IRS rep-resentatives informally indicated

that certain changes made by SBJPAdid not “require” a plan amendmentin order to preserve the plan’s quali-fied status. As a result, these offi-cials indicated that plan sponsorsmight need to amend their plan docu-ments right away if they wanted tofollow the new law in areas where aplan amendment would be “permit-ted” but not “required.” In otherwords, the operational compliance/retroactive amendment approachwould not be available for so-called“permissive” amendments. TheASPA Government Affairs Commit-tee met with IRS officials on severaloccasions to explain the difficultiesthat might be caused by such a strictinterpretation. Thankfully, the offi-cial guidance recently released by theIRS does not draw such a fine dis-tinction between permissive and re-quired amendments. Instead, it

provides a very practical approach tothe amendment process which shouldmake an unpleasant chore a little biteasier for both plan sponsors andpractitioners.

Revenue Procedure 97-41 waspublished in the August 18 editionof the Internal Revenue Bulletin. Itprovides a single deadline by whichall plans will need to be amended tocomply not only with SBJPA, butalso with certain changes made byGATT as well as the Uniformed Ser-vices Employment and Reemploy-ment Rights Act of 1994 (USERRA).Under Revenue Procedure 97-41, thedeadline for updating nongovern-mental plans for the many changescovered by these laws will be the lastday of the first plan year beginningon or after January 1, 1999. For gov-ernmental plans, the deadline willgenerally be the last day of the firstplan year beginning on or after Janu-ary 1, 2000.

Although the procedure pro-vides a blanket extension of the planamendment deadline, there are somevery significant differences in themanner in which certain provisionsunder the new law may be addressed.The remedial amendment periodrules found in Internal Revenue Codesection 401(b) were invoked by theIRS as the basis upon which the dead-line was extended. This section ofthe Internal Revenue Code was sub-stantially rewritten by ERISA. Un-

The pension law changes made by the Small BusinessJob Protection Act of 1996 (also known by its acro-

nym, SBJPA) were significant and far-reaching. Govern-ment officials at the Internal Revenue Service and TreasuryDepartment remain hard at work on the follow-up guidanceneeded to answer many of the open questions posed by thenew law. One area of concern has been the amendmentdeadlines and procedures for bringing retirement plans intocompliance. With the recent release of Revenue Procedure97-41 (and accompanying regulations), many of the ques-tions in this area have now been answered.


Although plan amendments arenot required right away, plansponsors must still operate theirplans in accordance with thenew law (for those changes thatare effective before 1999).

der its present form, its purpose is toprovide a remedial amendment pe-riod during which plan sponsors cancorrect disqualifying defects in thelanguage of a new plan or an amend-ment to an existing plan. If an em-ployer adopts a retroactive correctiveamendment during the so-called “re-medial amendment period,” the planis not disqualified. The remedialamendment period is the time periodduring which corrective amendmentsmay be made under IRC section401(b).

Under the rules of section401(b), the deadline by whicha corrective amendment mustbe adopted is the due date ofthe plan sponsor’s income taxreturn, including extensions,for the year in which a defec-tive new plan, or a defectiveamendment, is adopted. Forexample, the remedialamendment period for a newcalendar-year plan, sponsored by asole proprietor, would normally bethe April 15 due date of the soleproprietor’s income tax return. If thesole proprietor requested the auto-matic extension of his filing deadline,the remedial amendment periodwould stretch until August 15.

The remedial amendment rulesof IRC section 401(b) are designedto work hand-in-hand with the deter-mination letter application process.This is exemplified by the automaticextension of the remedial amend-ment period if a determination letterapplication is filed with the IRS be-fore the period would have otherwiseexpired. The corrective amendmentperiod then remains open while theIRS reviews the plan document. Thisgives the plan sponsor the opportu-nity to make a corrective amendmentif a defect is uncovered during theIRS review.

The IRS has issued proposed andtemporary regulations that will ex-pand the reach of the 401(b) rules.

Under the new rule, the definition ofa “disqualifying provision” has beenexpanded. It now specifically in-cludes plan provisions, designated bythe IRS, which would fail to satisfya qualification requirement becauseof a change in the law. It also in-cludes plan provisions which are in-tegrally related to a qualificationrequirement that has been changed bya new law. In other words, if there isa change in the law which requiresplan amendments, the IRS can des-ignate those changes as disqualify-

ing provisions, and this will then giveplan sponsors more time to updatetheir documents. Additionally, theIRS can also provide the same ex-tension for plan provisions which are“integrally related” to the qualifica-tion requirements that have beenchanged.

The IRS has chosen to do exactlythat with respect to the many newrequirements that have been added orchanged by USERRA, GATT, orSBJPA. However, the extension onlyapplies to those changes which areeffective before the 1999 plan year.This should not cause a problemsince the changes that are effectivein 1999 will be reflected in theamendment adopted in 1999. Its onlyimpact may be to require the updat-ing process be done in the early partof the 1999 plan year, rather than thelater part so as to avoid IRC section411(d)(6) cutback problems.

Although plan amendments arenot required right away, plan spon-sors must still operate their plans in

accordance with the new law (forthose changes that are effective be-fore 1999). When adopted, the ret-roactive updating amendment mustreflect the compliance choices theplan sponsor made in operating theplan. This would also be true for thechanges which are integrally relatedto the plan provisions that are af-fected by the new law.

Revenue Procedure 97-41 alsoemphasizes that in certain circum-stances, the law or other guidance re-quires plan amendments to be

adopted in a way that wouldpreclude use of the remedialamendment/retroact iveamendment approach. Ex-amples cited include themandate under IRC section417(e)(3)(B) that until a“pre-GATT” defined benefitplan is actually amended toimplement the new GATTinterest rate approach, ben-

efits must be determined under theplan’s pre-GATT terms. Similarly,Revenue Procedure 97-9 generallyprovides that 401(k) plans cannot beamended on a retroactive basis to addthe new SIMPLE provisions as a wayto satisfy the 401(k) and 401(m) tests.

The extension of the remedialamendment rules of IRC section401(b) to the latest changes in the lawis important relief for plan sponsors.This is particularly true for planswhich were the subject of determi-nation letters that qualified for “ex-tended reliance.” The extendedreliance program was used by theIRS as a means of encouraging plansponsors to update their plans earlyfor the many changes made by theTax Reform Act of 1986. Plans thatwere submitted within certain dead-lines for determination, opinion, ornotification letters were entitled to an“extended reliance period.” Duringthis period, plans which qualify don’tneed to comply or be amended forregulations or administrative guid-


Continued on page 9

ance issued after the date of the let-ter. The plan sponsor simply followsthe terms of the plan as written. Theextended reliance period for TRA ’86is still open and continues until thelast day of the 1998 plan year. As aresult, extended-reliance plans wouldhave needed to be updated during the1999 plan year, even if there hadn’tbeen a change in the law. Under Rev-enue Procedure 97-41, the updatingprocess for “extended-reliance”plans can now be all-inclusive for thenew law changes as well as the regu-latory guidance that has been issuedin the interim.

Another concern of plan spon-sors addressed by Revenue Proce-dure 97-41 relates to the applicationof the anticutback rules of IRC sec-tion 411(d)(6) to SBJPA amend-ments. As a general rule, a planamendment may not retroactivelyeliminate or reduce a benefit pro-tected by the anticutback rules un-less otherwise specifically permittedby law or official guidance publishedby the IRS. Based upon informalcomments made by several IRS of-ficials, there was concern in the em-ployee benefits community that incertain circumstances, plan amend-ments retroactively implementingthe repeal of the family member ag-gregation rules would be consideredto have violated the anticutback rulesof IRC section 411(d)(6). Thank-fully, this should not be the case.

Section 6.09 of Revenue Proce-dure 97-41 specifically provides thata plan amendment eliminating thefamily aggregation provisions willnot violate the requirements of IRCsection 411(d)(6) if the amendmentis effective as of the first day that theplan is operated in accordance withthe amendment (but in no event ear-lier than the 1997 plan year). Theeffect of this provision is that spon-sors can choose to operate their plansby ignoring the family aggregationrules without having to immediately

amend the documents. This is par-ticularly good news for the sponsorsof profit-sharing plans since, in manycases, it may be too late to amendtheir plans to remove family aggre-gation for the 1997 plan year with-out violating the anticutback rules.

Unfortunately, the sponsors ofdefined benefit and money purchasepension plans may have a need toupdate their plans sooner rather thanlater. Section 8 of Revenue Proce-dure 97-41 addresses minimum fund-ing and deduction issues. Therein,the IRS cites Regulation section1.412(c)(3)-(d)(l)(i) which generallyprovides that a reasonable fundingmethod does not anticipate changesin plan benefits that become effec-tive as a result of a future planamendment, even if the amendmentis to be made retroactively effective.(IRC section 412(c) provides an ex-ception in certain instances for col-lectively bargained plans.) As aresult, Revenue Procedure 97-41states, “Contributions to a definedbenefit plan will be deductible sub-ject to the limitations of section 404,with section 412 minimum fundingstandards determined without antici-pating such future amendments.”

What is unclear is whether theIRS intends for this same approachto apply to money purchase pensionplans since they are also subject tothe section 412 funding rules. Rev-enue Procedure 97-41 makes a spe-cific reference to the deduction andfunding rules for defined benefitplans while any actual mention of amoney purchase pension plan is con-spicuous by its absence. There doesnot appear to be any reason why thesame rule shouldn’t apply to moneypurchase plans, and at the recentlyheld ASPA Annual Conference, IRSofficials confirmed that to be thecase.

Although the deadline forSBJPA amendments has been ex-tended, it is important to point out

that special rules apply to terminat-ing plans. Since these plans will begoing out of existence, they must beamended, in connection with theplan’s termination, for any changesin the law that became effective onor before the plan’s termination date.However, any amendment that isadopted after the date of plan termi-nation in order to receive a favorabledetermination letter will be consid-ered as adopted in connection withthe plan termination.

Revenue Procedure 97-41 alsoofficially states that until further no-tice, determination, opinion, or noti-fication letters (other than forterminating plans), will not includeconsideration of whether the plancomplies with the changes made bySBJPA or GATT. The only excep-tions are with respect to the SBJPAchanges made to the definition ofleased employee and to the minimumparticipation rules (which now onlyapply to defined benefit plans). TheIRS expects to open up the reviewprocess for other aspects of the newlaw as soon as possible after addi-tional guidance is issued. During theinterim, plans can be submittedwhich include language for the newlaws, however a determination lettermay not be relied upon with respectto the SBJPA and GATT provisions.

For those who work with 403(b)plans, it should be noted that the re-medial amendment rules of IRC sec-tion 401(b) do not apply to theseplans. Consequently, amendments to403(b) plans, or to annuity contractspurchased under 403(b) plans, aresubject to the rules contained in sec-tion 1465 of SBJPA. That section ofSBJPA provides that if an amend-ment to an annuity contract or planis required, it need not be adoptedbefore the first day of the first planyear beginning on or after January 1,1998, provided the retroactive


Learning Your ABCDsby Richard A. Block, MSPA

At the June board meeting, ASPA’s directors voted toreprimand one of ASPA’s members. The Actuarial

Board for Counseling and Discipline forwarded a complaintthat alleged the subject actuary had violated precept 2 (failedto perform professional services with integrity, skill andcare), precept 3 (performed professional services and/orsigned professional communications without the requisitequalifications), precept 4 (failed to ensure actuarial workperformed under his direction met applicable standards ofpractice), and precept 5 (failed to take responsibility forprofessional communications he signed) of the Code ofProfessional Conduct for Actuaries.

By voting to reprimand the ac-tuary, the board agreed with the Ac-tuarial Board for Counseling andDiscipline that the actuary had notcomplied with the Code of Profes-sional Conduct for Actuaries.

What is the ABCD?The Actuarial Board for Coun-

seling and Discipline was establishedin 1992 by the U.S. actuarial organi-zations, including ASPA. The mis-sion of the ABCD is to —

• Provide counsel and respond torequests for guidance from actuar-ies about issues they encounter inday-to-day practice,

• Consider alleged violations of theactuarial profession’s Code of Pro-fessional Conduct,

• Offer remedial counseling and,when necessary, recommend dis-ciplinary measures to the memberorganizations, and

• Serve as ombudsman in the reso-lution of disputes involving actu-aries.

The ABCD is jointly adminis-tered by ASPA and by the other ac-tuarial organizations. ASPA pastpresident Ruth F. Frew, FSPA, CPC,currently serves on the ABCD board.

What is the ASB?ASPA also cosponsors another

jointly administered organization, theActuarial Standards Board. Thecharge of the ASB is to “direct andmanage the development of actuarialstandards of practice, to expose andpromulgate actuarial standards ofpractice in all areas of actuarial prac-tice and to provide continuous reviewof existing standards of practice, de-termining whether there is need foramendment, alteration, expansion orelimination.” ASPA past presidentAlan J. Stonewall, FSPA, currentlyserves on the ASB board.

For pension actuaries, there arestandards of practice for data qualityand the selection of economic as-sumptions. In addition, the ASB haswritten compliance guides for workinvolving Financial AccountingStandards Board opinions 87 and 88.

Why should there be standards?Although actuaries have been

practicing for centuries, our profes-sion is late in actually spelling outhow an actuary should approach atask. The standards written by theASB give the actuary a “road map”on his or her approach. Human na-ture being what it is, standards with-out enforcement would not beeffective. Therefore, the ABCD wasestablished to enforce adherence withthe standards.

My actuarial work complieswith applicable law.

Shouldn’t this be enough?In years past, compliance with

the law was sufficient. The creationof the ASB and the ABCD is ourprofession’s emphatic statement thatcompliance with the law is no longersufficient.

In recognition that legal require-ments allow for practices that are in-compatible with a professionalapproach to actuarial work, the ASBhas created standards that are farmore rigorous than the law.

Why should I care aboutthese standards?

For years, most pension actuar-ies were concerned about complyingwith the requirements of ERISA’sfunding standards and the InternalRevenue Service’s interpretation ofreasonable funding methods and as-sumptions.

Actuaries must still comply withall statutory requirements as well aswith the standards published by theASB. The standards give the actu-ary some assurance that his or her


work complies with a level of carethat is recognized industry wide.

During the small plan actuarialaudit program, the Tax Court re-quested information on publishedindustry standards. At that time, pub-lished standards were quite vague.Ultimately, the standards did influ-ence the court. Today, the standardsboth in final and proposed forms arefar more specific in the requirementsto which an actuary must adhere.

An actuary who complies withthe standards may use compliance asa defense in litigation. Conversely,an actuary who ignores the standardsmay have to justify to the court whythe industry’s minimum level of carewas not exercised.

It is the actuary’s responsibilityto understand and comply with thestandards. ASPA takes any referralfrom the ABCD seriously. Depend-ing on the nature and severity of theinfraction, the subject actuary mayface a private reprimand, a publicreprimand, suspension, or even ex-pulsion from ASPA for a breach ofthe Code of Professional Conduct forActuaries.

How do I get copies of thestandards of practice andqualification standards?

If you are a member of theAmerican Academy of Actuaries youshould already be on the mailing listfor ASB publications. If you are noton the mailing list, you should con-tact the Academy office.

If you are not a member of theAcademy, you may obtain copies ofthe standards by calling the Academyoffice. Full sets cost $60, but indi-vidual standards are also available.Standards and other documents arealso available in PDF format from theAcademy’s new Web site at http://www.actuary.org/standard.htm.

Richard A. Block, MSPA, is presi-dent of Block Consulting ActuariesInc., in Manhattan Beach, Calif.Chair of the Principles, Practicesand Risk Management Committee,Block also serves on ASPA’s boardof directors and on ASPA’s Govern-ment Affairs, Insurance, Membershipand Admissions, and Standards com-mittees.

C-1Classroom Kit

The Education and Examina-tion Committee has developed a newtool for instructors and trainers —the C-1 Classroom Kit. The E&ECommittee and course coordinatorsare always looking for qualified in-structors. But many professionalswho qualify are very busy and havetrouble finding the time to preparelesson plans.

To assist those who teach theC-1 course, we have developed theC-1 Classroom Kit. This kit is splitinto manageable sections for sched-uling classes or training sessions.Each session includes the requiredreading for the session, instructorpreparation suggestions, an outline ofthe topics to be covered, suggestionsfor the instructor to wrap-up for thesession, homework for the students,and homework solutions.

This training tool is helpful bothfor C-1 course instructors and as aready-made training tool for employ-ers to use for in-house training. TheC-1 Classroom Kit is available for$250 for ASPA members and $350for non-ASPA members.

There are more classroom kitscoming. The C2-DB Classroom Kitwill be available early in 1998, andthe C2-DC Classroom Kit in thespring of 1998.

Please contact the ASPA E&EDepartment at (703) 516-9300 formore information.

Introducingthe

CongratulationsCongratulations to ASPA mem-ber Lawrence A. Johansen,MSPA, who is the incomingpresident-elect of the AmericanAcademy of Actuaries.

Guidance on SBJPA AmendmentsC O N T I N U E D F R O M P A G E 7

amendment and operational compli-ance requirements are satisfied.Governmental 403(b) plans and con-tracts generally have until the 2000plan year.

Revenue Procedure 97-41 isgood news for plan sponsors andtheir advisors. It should make theSBJPA amendment process go muchsmoother. The IRS should be com-mended for its willingness to listento the concerns expressed by ASPA’sGovernment Affairs Committee inregard to these issues. Although it isonly speculation at this time, manyexpect the IRS to add the changes

that may be required by the TaxpayerRelief Act of 1997 to the list of “dis-qualifying provisions” that will beaddressed as part of the SBJPAamendment process. The Govern-ment Affairs Committee will con-tinue to provide input to governmentofficials in regard to these mattersand we’ll report back in the future.

Craig P. Hoffman, APM, generalcounsel of Corbel in Jacksonville,Florida, is a vice president of ASPAand a cochair of ASPA’s Govern-ment Affairs Committee.


DISCOVER HOW THE INTERNET CAN KEEP YOU ON THE CUTTING EDGE

The Internet and theEmployee Benefits Webby John P. Parks, MSPA

The graphical face of the Inter-net — the World Wide Web — hastouched the business life of virtuallyevery organization in this country. Itis rapidly encircling the globe and,as a communications tool, shrinkingthe world to the size of a marble.Anywhere, anytime-asynchronouscommunication, better known as E-mail, is verification of this point. E-mail has already changed the way weconduct business and will continueto do so at an accelerated rate. Yousend a message to a friend’s mail-box (without a stamp) across thestreet or to another continent. Themessage waits until they check themail and the response can be imme-diate or at a later, more convenienttime. You can also attach to thatmessage files of almost any kind —a picture of your family, a spread-sheet, or a complete pension plandocument.

Access to, and a presence on, theInternet will undoubtedly become

easier as software and hardware gainfriendliness. A recent AmericanManagement Association survey of3,500 executives revealed that 78percent have individual access to theInternet; by next year the number isexpected to rise to 88 percent. Whenan organization decides to include anInternet presence in its strategic plan,the next step is to plan the timelinefor implementing such a presence.Considering the potential of the In-ternet and the negative impact an or-ganization could experience withoutaccess, the logic of sooner versuslater is compelling.

The BasicsWhat is the Internet? It is an eas-

ily accessible worldwide network ofcomputer networks containing bil-lions upon billions of bits of infor-mation on every imaginable subject.The recent explosive growth oc-curred when the Web’s graphical in-terface hit the Internet in 1993,

making it much friendlier to use. Notonly do Web pages contain text, butthey can talk and sing to you whileimages dance across your screen.

What technology do you need toget to the Internet? It’s easy — acomputer with a modem, a phone lineor a network, browser software suchas Netscape Navigator or MicrosoftInternet Explorer, and a touch of pa-tience. Your local computer storestocks everything you need and canhave you “surfing the ’Net” in notime.

What will I find out there? Itwould be much simpler to list what’snot out there! Internet informationranges from the sublime to the ridicu-lous, from the Vatican to virtual re-ality. It is an informational diamondin the rough and, simultaneously, avast wasteland. You can find any-thing from the Constitution and theDeclaration of Independence to thegraphic dissection of a frog, thephysiology of a gnat, and it’s prob-ably the only place you can find thecomplete lyrics to “99 Bottles of Beeron the Wall”! A few day care cen-ters can provide, through the Inter-net, video shots of the day care roomsso that worried parents can view theirchild throughout the day. The Inter-net has been instrumental in savinglives, and sadly, it has been cited asresponsible for taking a few.

Government forms (IRS, DOL,PBGC, etc.) along with their instruc-tions become accessible with a few

The Web — it’s twisted, tangled, weaving, confusing,and sometimes incomprehensible — yes. But it’s

also useful, efficient, provocative, and downright necessary.If your company doesn’t already have a presence on theInternet, you had better blow the dust off your strategic planand insert the Web at the top of your list of objectives. Anorganization’s analysis of its strengths, weaknesses, oppor-tunities, and threats — or SWOT — that does not considerthe Internet and its potential is lacking a critical component.


clicks of your mouse. Electronic fil-ing of them also makes great strideseach year. It’s only a matter of timeuntil you can file your 1040 tax formcompletely over the ’Net.

It’s difficult to find consistentstatistics about the real usage of theInternet. Current estimates are thatthere are around 60 million users. Bythe turn of the century, the estimatesrange from 150 million to 500 mil-lion. In 1993 there were 130 Websites; today it is believed there aremore than 600,000.

Another recent trend is pushtechnology where information ispushed to you as selected. As it de-velops, the precision of that informa-tion becomes more refined. Myfavorite is Pointcast, where there areabout two dozen channels or catego-ries, and within each channel are sub-categories of news from which toselect. You select the channels andsubcategories and how often youwant the information updated. Theseautomatic updates bring you the lat-est news tailored to your specific in-terests. It can be as detailed as stockprices for chosen listed companies.And along with current ticker pricesat update time come current finan-cial information and recent press re-leases on those companies. This datathen becomes your screen saver as itgraphically scrolls across yourscreen, keeping you current to theminute.

There are many additional ad-vantages for an ASPA employeebenefits firm to be on the Internet andhave a Web presence. There are anumber of benefit-related sites thatcontain valuable and useful informa-tion. (See Web address list on page12). BenefilsLink.com is the creamof the crop and well worth your time.Try it out, if you haven’t already doneso. Retirement Planning tools areabundant. Torrid Technologies hascreated a nice graphical planner thatis also easy to use. The site can be

accessed at http://www.torrid-tech.com.

Employee benefit outsourcingand, more generically, human re-sources outsourcing, is becoming awhole new area of opportunity anddemand. The ability to provide cli-ent services through the Internet isbecoming more and more common-place. To remain competitive in thefuture, it will be mandatory to offerthis service. An example applicableto our business and on the cutting-edge is the use of interactive Websites, which allows plan participantsto view their account balances andactually make trades in their dailyvalued 401(k) plans. Just a few ofthe advantages to the participant ofusing this technology compared tostandard VRU approach includethese:

1.) Seeing the data on screen ratherthan hearing a digitized voiceone number at a time.

2.) Ability to download the data or aportion of the data.

3.) Just being able to print it on pa-per for later review. Visit theLarry Johnson & Associates’ siteat www.lj-c.com for more infor-mation and a sample.

Companies are continuouslyfinding creative and innovative waysto use the Internet for everyday busi-ness functions. There is no limit tothe possibilities. The following listcontains some that are general to allbusinesses and some more related tobenefit firms. And, they are only thetip of the iceberg.

At the General Level• Advertising

• Electronic file transfers

• General client broadcasting —E-mail vs. fax and “snail mail”

On a Plan LevelStatic

• Valuation report summary

• Government forms: 5500,PBGC, etc.

• Plan document and amendments

• Compliance calendar

Interactive• Asset statement inquiries

At the Participant LevelStatic

• Participant statements

• Summary plan description

• Summary annual report

• Retirement plan administrativeforms

• Application for participation

• Application for retirement, etc.

Interactive• Requests for retirement calcu-

lations or optional forms ofbenefits

• 401(k) participant data

Visit the ASPA site atwww.aspa.org. It has been aroundfor a while and contains lots of use-ful information. It is now the focusof ASPA’s Communications andTechnology Committee. We are inthe process of developing our goalsand objectives for 1998. One gen-eral objective is to provide more edu-cational information. We wouldappreciate any thoughts you mighthave. Send your E-mail [email protected].

John P. Parks, MSPA, is president ofMMC&P Retirement Benefit Ser-vices Inc., in Pittsburgh. Treasurerof ASPA, Parks also serves on theASPA board of directors and theFinance and Budget Committee andchairs the Long Range PlanningCommittee


Web Site AddressesActuarial Organizations

ASPA: http://www.aspa.orgCanadian Institute of Actuaries: http://www.actuaries.caCasualty Actuarial Society: http://www.casact.orgConference of Consulting Actuaries: http://ccactuaries.orgThe Institute of Actuaries of Australia

http://www.actuaries.asn.auThe Institute of Actuaries/The Faculty of Actuaries

http://actuaries.org.uk

Other Employee Benefit-Related SitesAmerican Medical Association: www.ama-assn.org/(Canadian) Benefits Interface: http://benefits.org/index.htmEmployee Benefit Research Institute: http://www.ebri.orgFederal Web Locator

http://www.law.vill.edu/fed-agency/fedwebloc.htmlInternational Foundation of Employee Benefits Plans

http://www.ifebp.orgThe National Center for Employee Ownership

http://www.nceo.orgNational Health Information Research Center

http://www.nhirc.orgNational Institute of Pension Administrators: www.nipa.orgPension & Investments: http://www.pionline.comTIAA-CREF: http://www.tiaa-cref.org

Benefit Job Search SitesWorkforce Online: www.workforceonline.comThe International Foundation for Employee Benefit Plans

www.ifebp.orgThe Society for Human Resource Management: www.shrm.orgTraining & Development Job Mart: www.tcm.comTrainingNet’s job database: www.trainingnet.comRobert Grant Associates: www.benefitslink.com

Governmental SitesBureau of Labor Statistics: http://www.bls.gov/blshome.htmlCenters for Disease Control and Prevention

http://www.cdc.govCode of Federal Regulations: http://www.law.house.gov/cfr.htmDepartment of Labor: http://www.dol.gov/dol/welcome.htmEdgar Database: http://www.sec.gov/edgarhp.htmFedWorld: http://www.fedworld.govFederal Reserve Bank — Boston Gopher

gopher://ftp.shsu.edu/11/Economics/FRB-BostonFederal Reserve Bank — New York gopher://una.hh.lib.umich.edu/00/ebb/monetary/quotes.txtFederal Reserve Bank of Philadelphia: http://www.phil.frb.orgFederal Reserve Gopher: gopher://town.hall.org/1/other/fedGovernment Accounting Office: http://www.gao.govPension Benefit Guaranty Corporation: http://www.pbgc.govPension and Welfare Benefits Administration

http://www.dol.gov/dol/pwba

Small Business Administration: http://www.sba.govSocial Security Administration: http://www.ssa.govThomas (bills in Congress): http://www.thomas.loc.govU.K. Treasury: http://www.hm-treasury.gov.ukU.S. Business Advisor: http://www.business.govU.S. Federal Deposit Insurance Corporation

http://www.fdic.govU.S. House of Representatives: http://www.house.gov/U.S. Senate: http://www.senate.gov/World Health Organization: http://www.who.ch

Search EnginesAlta Vista: http://altavista.digital.comC/net: http://www.search.comExcite: http://www.excite.comFilez — search 60 million files: http://www.filez.comInfoGuide: http://guide.infoseek.comInternic: http://ds2.internic.net/toolsLycos: http://www.lycos.comShareware: http://www.shareware.comWebCrawler: http://www.webcrawler.comYahoo!: http://yahoo.com

A Few Curious SitesDilbert: http://www.unitedmedia.com/comics/dilbertEavesdrop on Congress: www.fednet.netFly Fishing: www.flyshop.comIditarod: http://www.iditarod.comMaps and Directions:

www.mapsonus.comwww.mapquest.comwww.delorne.com/cybermaps/www.vicinity.com

Myers Briggs: http://sunsite.unc.edu/jembin/mb.plNonprofit Information:

www.idealist.orgwww.nonprofits.org:

Personal Info Manager/Scheduler: www.server.com/PIMPhysics/Math: www.aip.org/history/einstein/einsteinPointCast: www.pointcast.comQuote of the Day

http://www.starlingtech.com/quotes/qotd.htmlReal Beer Page: www.realbeer.com/rbp/rbpSelf-Help Medical:

www.mayo.ivi.com/ivi/mayo/comMM/htm/library.htmwww.housecall.comwww.familyinternet.com/mhl/main.htmwww.medaccess.com

Smart Wine Online: www.smartwine.comU.S. National Park Service: http://www.nps.govA Word A Day: [email protected]


ENROLLMENT EXAMINATIONS

JBEA Advisory CommitteeReviews Exam ProgramCarl Shalit, MSPA

The Joint Board for the Enrollment of Actuaries hasasked its Advisory Committee on Actuarial Exami-

nations (of which the author is the coordinator) to undertakea review of the current enrollment examinations. Thisrequest came about as a result of discussions at the publicsession held in conjunction with the January 7, 1997, meet-ing of the Advisory Committee.

While the Joint Board believes thatthe current examinations properly deter-mine if candidates for enrollment havethe required actuarial knowledge, it rec-ognizes that the changes in pension lawsince 1984 (the last time the exams wererevised other than annual syllabus up-dates) are numerous, and therefore theamount of material being tested in eachexam may not be appropriate for the cur-rently allocated time. Also, because ofthe changing environment, we may nowhave a situation in which some obsoleteor nonapplicable topics are being testedwhile other germane topics are not be-ing adequately tested. There are alsochanges taking place in the general edu-cation process in the United States andwithin the actuarial profession whichperhaps should be recognized in the ex-aminations.

An initial discussion draft has beenprepared by the Advisory Committeewhich is being made available to the gen-eral actuarial community. After an in-troduction and brief background, thediscussion draft consists of the follow-ing titled sections:

HistoryA brief history of the Joint Board

and its Advisory Committee and the ex-isting legislative and regulatory situationunder which they operate.

Examination Preparation ProcessA description of the process through

which the current enrollment examina-tions are developed and administered.

Are the Exams AccomplishingWhat They Are Supposed To?

A brief section which discusseswhether a combination of exams andexperience is the best way to determineif a candidate has sufficient knowledgefor enrollment.

Are the Exams StructuredProperly Including the Topics

and the Split Among the Exams?A discussion of the topics currently

on the exams with identification of pos-sible deletions and additions.

Open Book Examination(s)A discussion about the possibility of

open book exams.

Elimination of CommutationFunctions Requirement

A discussion about whether knowl-edge of commutation functions is re-quired by an enrolled actuary.

Varying Point Value of QuestionsA discussion about weighting ques-

tions based on apparent difficulty or ex-pected time to answer.

Other TopicsBrief discussions on several points

peripheral to the main topics of the paper.

If possible, the Advisory Commit-tee would like to make its recommenda-tions to the Joint Board prior to thescheduled public session around the endof June 1998.

We welcome the thoughts and opin-ions not only of those involved in theexam process but also of those in the ac-tuarial community at large, includingthose in academia. Any restructuring ofthe enrollment exams affects not only theJoint Board and the two cosponsoring so-cieties (the Society of Actuaries andASPA) but all actuaries. We thereforebelieve that, in general, our deliberationsshould be public and the public shouldhave the ability to comment as we pro-ceed.

Copies of the discussion draft canbe obtained by contacting me by fax at(781) 344-4188 or by E-mail [email protected]. I urge all who areinterested to obtain a copy and comment.

The next public session of the Ad-visory Committee will be held in Wash-ington, D.C., on January 8, 1998. Theexact location and time will be publishedin the Federal Register prior to the meet-ing as will the procedures to make com-ments at that session. In addition,comments may be sent directly to meat—

Carl Shalit & Associates Inc.630 Park Street

Stoughton MA 02072-3659

Carl Shalit, MSPA, is president of CarlShalit & Associates Inc., an actuarialconsulting firm located in Stoughton,Mass. Shalit is coordinator of the JointBoard Advisory Committee on Examina-tions.


At ASPA’s 1997 Annual Conference, the 1997 HarryT. Eidson Founders Award was presented to Chester

J. Salkind, ASPA’s executive director from 1979 through1996. Salkind’s tenacious conviction that plan sponsorsshould defend actuarial assumptions during the InternalRevenue Service’s small plan actuarial audit program wasgrounded in years of government experience. Salkind workedfor the IRS as well as the Department of Labor and PensionBenefit Guaranty Corporation — the first person to work forall three government agencies dealing with retirement plans.

Humorously self-effacing andforward-looking, Salkind preferredtalking about what has happenedsince his retirement rather than abouthis career.

Were you surprised by the factthat the recently enacted TaxpayerRelief Act of 1997 included a num-ber of provisions favorable to theprivate pension system?

This statute included an increasein the full-funding limit, clarified thetreatment of matching contributionsfor self-employed individuals, pro-vided a complete repeal of the 15percent excise tax on excess distri-butions and accumulations, and in-creased the permissible cash-outamount. Prior to the passage of thisstatute, the common wisdom was thatCongress would not deal with pen-sions in any substantial way becausein 1996 the Small Business Job Pro-tection Act included a number of sig-nificant pension items. The

expectation was that Congress wouldnot want to deal with pension mat-ters two years in a row. I shared thatexpectation. However, I was mis-taken. I believe there are two rea-sons why Congress did take uppension matters in 1997. First, be-cause of the aging of our population,there is a growing recognition on thepart of lawmakers of the need to pro-mote the private pension system.Second, there was a substantial ef-fort by the pension community, ledby ASPA, to seek the enactment offavorable pension legislation. Par-ticular credit should go to the Gov-ernment Affairs Committee and toASPA’s current executive director,Brian Graff, whose contacts and ef-forts on the Hill proved very valuable.

What lessons do you think theexperience of 1997 demonstratesfor future pension legislation?

I think the answer is that persis-tent effort is required by ASPA and

its members to assure that legislationfavorable to the private system willcontinue to be enacted, particularlylegislation providing a better envi-ronment for small plans. Clearlythere is a growing awareness on thepart of members of Congress and theHill staff of the importance of theprivate pension system. Howeverthat awareness alone will not assurethe enactment of favorable legisla-tion. Congress has many concerns,and it’s vital to legislative successthat the retirement plan communityaggressively promote favorable leg-islation.

What do you see as the mostimportant matters that should beaddressed next by Congress?

The enactment of ASPA’s sim-plified defined benefit plan proposal,the SAFE plan, would be high on mylist. The decline in the number ofdefined benefit plans during the last15 years, particularly in the smallbusiness area, has been well docu-mented. The repeal of the top-heavyrules is another important change thatwould significantly reduce adminis-trative costs for small plans. Revert-ing to the maximum compensationlimits that existed before the TaxReform Act of 1986 and changing the10-years-of-participation requirementto a 10-years-of-service requirementwould also be high on my list.

One of the legacies of ASPA’sbattle with the IRS over the smallplan actuarial audit program

LONGTIME ASPA EXECUTIVE DIRECTOR HONORED AT ANNUAL CONFERENCE

Chet Salkind Wins1997 Harry T. Eidson Award


seems to be better relations be-tween ASPA and the IRS. Howdoes ASPA improve relations withthe agencies without having towage a major battle?

I think the same approach is ap-plicable to improving relations withthe administrative agencies as it iswith improving the prospects for fa-vorable legislation from Congress —that is a persistent, determined effortto seek regulations or policies thatwould be practical and would reducethe administrative burden that planadministrators must face. If the is-sue is significant, and persuasionfails, then congressional relief shouldbe sought. I do not envision any ju-dicial battles in the immediate future,such as occurred during the IRSsmall plan actuarial audit program.But if significant judicial battlesshould develop, then ASPA shouldparticipate through the filing offriend-of-the-court briefs.

One activity of the Departmentof Labor does strike me as particu-larly unfair and burdensome to ben-

efits professionals — the service pro-vider audits. I have never believedthat the DOL has the legal authorityto conduct such audits, although ob-viously that agency doesn’t share my

opinion. I do not think a legal chal-lenge is practical — the case woulddrag on for several years and be asubstantial burden to the service pro-vider seeking relief from a DOL sub-poena to provide plan records. I think

the only realistic course of actionhere is to pursue legislative relief. Ithink a substantial effort should bemade to educate Congress to the factthat the DOL is asserting virtually

unlimited authority toconduct service pro-vider audits. If Con-gress is made aware ofthe situation, then a ba-sic sense of fairnessshould move them topass legislation ex-pressly precluding ser-vice provider auditsexcept where there issubstantial evidencethat the service pro-vider is guilty ofwrongdoing. And insuch cases, the DOLsubpoena authority

should be limited to documents re-lated to that wrongdoing.

From your years of experiencein pension matters, both in the gov-ernment and private sector, whatbasic message would you send tocurrent benefits professionals?

The private pension system playsa vital role in our country in provid-ing needed capital and substantialbenefits to millions of people. How-ever, the fact that the system doesincredible good is not sufficient toensure a favorable legislative andregulatory environment. What’s nec-essary is to aggressively pursue theinterests of the private pension sys-tem and not rely on the inherent valueof that system. I think ASPA and itsmembers are doing just that.

In the 19th century, there was anagrarian reformer who told farmersthey should “raise less corn and morehell.” While I would not advocatethat ASPA and its members do lesstechnical work, I do believe that rais-ing a little hell with Congress and theadministrative agencies when all elsefails is appropriate.

1998 One-Day WorkshopsCosponsored by ASPA and the ASPA Benefits Councils

4 Orlando — May 8 or 15

4 Philadelphia — May 1 or June 19

4 Cleveland — May 11

4 New Orleans — June 8

4 Atlanta — June 24

4 Seattle — July 10

These workshops will cover a half-day on 401(k) testing rules and ahalf-day on cross testing, as well as current developments. Earn asmany as eight credits of core and noncore JBEA continuing education.

Three “Best of Midstates” Workshops in 1998New this year! ASPA will offer three one-day workshops comprised

of the best of the Midstates Benefits Conference.

4 Kansas City, Mo. — September 21

4 Minneapolis — September 25

4 Milwaukee — September 28

For information call Ken Morton, meetings assistant, at (703) 516-9300.

1997 Harry T. Eidson Award winner Chester J.Salkind, Esq., (left) with ASPA past presidentG. Patrick Brynes, MSPA.


PWBA Investigations —Pitfalls and Opportunities

C O N T I N U E D F R O M P A G E 2


book value. Unbeknownst to theowner of the company (who was alsothe trustee of the plan), the value ofthe underlying real estate had depre-ciated significantly in value.

In 1996, the PWBA opened aninvestigation of the plan. The inves-tigator examined all of the planrecords and conducted interviews ofthe trustee and members of the boardof directors. Based on that informa-tion, the PWBA concluded that thetrustee and the company’s board ofdirectors had breached their fiduciaryduties by failing to diversify invest-ments, by making imprudent invest-ments in high-risk limitedpartnerships, by failing to monitorthe investments over time, and byfailing to properly value the assetson an annual basis.

The PWBA sent the company avoluntary compliance notice letter(VC notice letter). The PWBA en-forcement manual provides that a VCnotice letter is sent to fiduciarieswhere the PWBA finds that there hasbeen a fiduciary breach or otherERISA violation (except where thePWBA has determined that a civil orcriminal action should be pursuedregardless of whether the fiduciaryis prepared to make restitution).

At this point, we were hired toanalyze the case. We conducted ourown inquiry and found out that thetrustee had not investigated whetherthe investments were prudent. Thetrustee had purchased the partnershipinterests on the representations of thesalesperson marketing the invest-ments. The trustee had not done anyindependent investigation of those

representations and had not soughtindependent expert advice. Needlessto say, this information was discour-aging. This is because the determi-nation of whether a fiduciary hasacted imprudently under ERISA gen-erally is not based on whether theinvestments did well or poorly, butrather on whether the fiduciary candemonstrate that a prudent investi-gation was done before investing(“procedural prudence”).

In this case, we concluded thatthe trustee had a significant enoughrisk that the PWBA could prevail.However, there were two limitedpartnerships that were substantiallyless risky than the others and whichhad performed reasonably well, in-cluding paying annual distributions.

One other aspect of the case thatworked in the trustee’s favor was thatsome of the partnership interests hadbeen purchased so long ago that ar-guably the breach of fiduciary dutywas beyond ERISA’s six-year stat-ute of limitations. Moreover, be-cause there was no market for theseinvestments after the initial purchase,the breach of duty caused by the fail-ure to monitor, which was still openunder the statute, did not cause anydamage to the plan.

Fortunately, the company hadpurchased fiduciary liability insur-ance. (Note: This is different froma “fiduciary bond,” which coverstheft of assets.) This type of policyinsures the fiduciary against claimsfor damages resulting from fiduciarybreaches. While policy terms differ,normally these policies require thata notice of the claim be made within

a fixed period, such as 30 days fromthe date of the claim. Moreover, gen-erally, the policies exclude or exceptclaims if the fiduciary responds to theclaim (particularly by acknowledg-ing wrongdoing) without approvalfrom representatives of the insurancecompany. Fortunately, the companywas able to timely notify the carrierof the PWBA claim and the trusteedid not respond to the VC notice let-ter until after the carrier agreed.

The VC notice letter outlined thefacts discovered in the investigation,listed the violations of ERISA com-mitted by the fiduciaries (that is, thetrustee and the members of the boardof directors), and concluded by de-manding that the fiduciaries correctthe losses of approximately $1 mil-lion. It stated that the PWBA wouldimpose the 20 percent section 502(l)penalty if there was a settlementagreement or a court order enforc-ing correction of the ERISA viola-tion. However, it did not explain thatthe PWBA takes the view that, for asettlement to occur, a civil actionneed not be instituted nor is a formalwritten settlement agreement neces-sary. If the fiduciaries had acknowl-edged the fiduciary breach andoffered to make correction in re-sponse to the VC notice letter, thePWBA would have treated that as asettlement and imposed the section502(l) penalty.

Once we explained the section502(l) penalty to the fiduciaries, theywere in the awkward position ofwanting to settle with the PWBA, butrealizing that if they did so, it wouldcost an additional 20 percent of thesettlement as a penalty. (This wasparticularly difficult since the carrierinsured only against the losses causedby the breach and not penalties.) Theinsurance company initially balkedat the idea of a voluntary,“nonsettlement” correction. How-ever, they were ultimately persuaded


IRS-DOL Coordination SummaryBoth the Internal Revenue Service and the Department of Labor have responsibilities which basically grew out of

the Employee Retirement Income Security Act of 1974 (ERISA). Generally, the IRS has jurisdiction for those itemscontained in the Internal Revenue Code, and the DOL has jurisdiction for those items contained in ERISA. ERISAcitations are shown as Act sections. Either the IRS or the DOL, or both jointly, can initiate original review of recordsand, if appropriate, coordinate with the other. IRC section 6103 permits the IRS to notify the DOL, and Act sections3002 and 3003 permit the DOL to notify the IRS. The following includes, but is not necessarily limited to, the issuescoordinated between the IRS and DOL.

IRS to DOL1. Plan/Trust AssetsAre they: prudent, diversified, paying reasonable com-pensation for services rendered to the plan, fairly val-ued at current market value, containing loans or fixedincome in default, and containing any nonexempt pro-hibited transactions? (IRC section 4975.)

2. Minimum Funding StandardsHas the plan sponsor paid the required contribution tothe plan? (IRC sections 412, 415, 4971, and 4975.)

3. ParticipationRank-and-file employees must be in the plan if they meetthe requirements. (IRC sections 401(a)(26), 401(a)(4),and 410.)

4. VestingThe amount of a benefit that is nonforfeitable. (IRCsections 401(a)(4) and 411.)

5. Form 5500 Series ReturnsHave they been filed with appropriate schedules?

6. “Other” MattersAny other matters or issues requiring referral. This isthe “catch-all” between the IRS and the DOL.

7. Exclusive Benefit ViolationThe trust instrument must make the corpus and/or itsincome exclusively for the benefit of the employees ortheir beneficiaries until their liabilities are satisfied. (IRCsection 401(a)(2).)

8. Final Adverse or WithdrawalWhere an application for a determination letter asksthe IRS to rule on a plan’s qualification as to “form” andthe IRS issues a letter stating the plan is not qualified;also, when the application is withdrawn.

9. Final Revocation and/or DisqualificationThis is for a plan under IRC sections 401(a) “Qualified;”or 404(a)(2) “Employees’ Annuities.”

10. Other Filings for DOLWere the summary plan description, summary annualreport, and summary of material modifications preparedand/or filed?

11. Fidelity BondIs there an adequate fidelity bond on personnel han-dling plan funds? (Act section 412.)

DOL to IRS1. Plan/Trust AssetsAre they: prudent, diversified, paying reasonable com-pensation for services rendered to the plan, fairly val-ued at current market value, containing loans or fixedincome in default, and containing any nonexempt pro-hibited transactions plus fiduciary activities? (Act sec-tions 103, 404, 406, and 408.)

2. Minimum Funding StandardsHas the plan sponsor paid the required contribution tothe plan? (Act section 302.)

3. ParticipationRank-and-file employees must be in the plan if theymeet the requirements. (Act section 3002.)

4. VestingThe amount of a benefit that is nonforfeitable. (Act sec-tion 3002.)

5. Form 5500 Series ReturnsHave they been filed with appropriate schedules?

6. “Other” MattersAny other matters or issues requiring referral. This isthe “catch-all” between the DOL and the IRS.

7. Other than Cash ContributionIf the plan contribution was made in other than cash,was it at fair market value?

8. Determination LetterDid IRS issue the plan a favorable determination letteron qualification?

9. TEFRA, DEFRA, REAWas the plan amended for these laws?

10. Plan TerminationDid the IRS issue the plan a favorable determinationletter on termination? Was there any revision to thesponsor? Was there any spin-off, plan merger or trans-fer of assets/liabilities? Was a Form 5310 filed withthe IRS?


that the only viable solution was tovoluntarily make correction of theportion of the loss that was causedby the negligence of the fiduciaries($100,000).

Once the insurance companyfunded the partial correction, the fi-duciaries responded to the PWBAthat they had voluntarily returned$100,000 to the plan and that theywere not admitting that any of theallegations in the VC notice weretrue. Moreover, the letter explainedwhy some of the asserted breacheswere beyond the statute of limita-tions. The letter concluded by ad-vising the PWBA that the fiduciarieswere not entering into a settlementagreement.

After verifying that paymenthad been made to the plan, thePWBA closed the case. It is impor-tant to point out that there was noagreement between the PWBA andthe fiduciaries that the $100,000would be acceptable. The PWBAcould have brought an action againstthe fiduciaries despite the paymentto the plan of the $100,000. Accord-ingly, it was critically important thatthe amount restored to the plan rep-resented a fair assessment of the po-tential liability. This could only bedone with a detailed knowledge ofthe law and insight into the likelyreaction of the PWBA.

The $100,000 paid into the planby the fiduciary liability insurancecarrier was allocated to the accountsof the participants for each of theyears during which losses occurredas a result of the breaches — and thatwere opened under the statute oflimitations.

Although the PWBA investiga-tion was resolved, the plan contin-ued to have “disqualifying defects”because it had not annually revaluedthe partnership interests. This meantthat participants who terminated ser-vice had received more than the true

value of their accounts — since someof the plan assets, the partnership in-terests, were overvalued. As a re-sult, the remaining participants hadsuffered cutbacks in the value of theiraccounts due to the overpayment tothe terminated employees. This cut-back in accrued benefits to the re-maining participants constituted aviolation of, among other things, therequirement that a plan be adminis-tered according to its terms. Thismeant that the plan was subject todisqualification. To avoid a poten-tial audit by the IRS concerning thisissue (resulting possibly in a PWBAreferral to the IRS), we filed an ap-plication under the Voluntary Com-pliance Resolution Program.

Revenue Procedure 96-29 per-mits the filing of a VCR if the em-ployer has not received either oral orwritten notification from the IRSEmployee Plans and Exempt Orga-nizations Division of an impendingaudit. The fact that the plan has beenthe subject of a PWBA investigationdoes not preclude the filing of a VCR.

The most difficult part of theVCR process was the time and ex-pense of redoing all of the accountvaluations for all years, some ofwhich were beyond the statute oflimitations. Once the potential lossto each account was determined, thecompany repaid all such amounts,plus interest, as part of the VCR. (Ofcourse, much of the correction hadbeen accomplished through the de-posit of the $100,000 correctionamount in the plan in connection withthe PWBA investigation.)

ConclusionThe current structure of ERISA

section 502(l) requires the impositionof the 20 percent penalty in everycase where there is a breach of fidu-ciary duty or violation of ERISA ifan investigation results in a settle-

ment with the PWBA. Until this ruleis changed, every PWBA investiga-tion must be carefully handled by thefiduciary and its advisors to mini-mize the likelihood of the impositionof that penalty. (The PWBA is onrecord as favoring a discretionary502(l) penalty, and it is likely thatlegislation will convert the penaltyfrom mandatory to discretionary inthe future. Moreover, on August 20,1997, ASPA proposed to the Depart-ment of Labor that it establish a vol-untary correction program that wouldmake it possible to avoid the 502(l)penalty.) Moreover, PWBA investi-gations involve many other issues,such as fiduciary insurance, correc-tion methodology, and the deductionrules concerning restoration pay-ments. In addition, each PWBA in-vestigation must be analyzed todetermine if the plan has any defectsthat can be corrected under the IRSvoluntary programs, including Walk-in CAP, VCR, APRSC, and Delega-tion Order 97. (Delegation Order 97is currently being offered only in theWestern Region on an experimentalbasis. Under this program, if a planvoluntarily walks in and pays an ex-cise tax reportable on a Form 5330,such as for a prohibited transactionor a funding deficiency, then theamount of the excise tax is reducedby 25 percent and the interest andpenalties are waived.)

Martin M. Heming, APM, is an attor-ney with the Los Angeles law firmReish & Luftman. Heming practicesexclusively in the area of employeebenefits, emphasizing resolution ofcontroversies with the IRS, DOL, andPBGC. C. Frederick Reish, APM, isa founder of and partner with the LosAngeles law firm Reish & Luftman.He is a former cochair of ASPA’sGovernment Affairs Committee.


the Senate was also under tremen-dous pressure to pass the bill thisyear. However, Senator William V.Roth (R-Del.), chairman of the Fi-nance Committee, successfully de-layed a vote on the bill until next yearso that he and other Finance Com-mittee members can put their own“stamp” on the legislation.

A less prominent provision in theIRS restructuring bill should be ofparticular interest to enrolled actu-aries. The bill as approved by theHouse Ways and Means Committeeincludes a provision extending thepresent law attorney-client privilegeof confidentiality to tax advicefurnished by individuals autho-rized to practice before the IRSin noncriminal proceedings withthe IRS. However, as originallydrafted, the provision arguablydid not apply to enrolled actu-aries (or enrolled agents) be-cause the original legislation referredto individuals licensed under state law.

ASPA contacted congressionalstaff regarding this issue and afterseveral conversations they agreed tomodify the legislative language sothat it applies to enrolled actuaries(and enrolled agents). Further, clari-fying language was added to the leg-islative history indicating that theprovision is clearly intended to ap-ply to enrolled actuaries. Specialthanks to Michael E. Callahan, FSPA,CPC, and Marjorie R. Martin, MSPA,for their assistance on this issue.

Assuming this provision ispassed by the Senate intact andsigned by President Clinton, enrolledactuaries will have a valuable newtool in their dealings with the IRS.However, Treasury has indicated that

they have concerns about extending theattorney-client privilege tononlawyers.

TRA ’97 TechnicalCorrections

Given the pace of tax legislationthese days, it is not surprising thatCongress is already working on tech-nical corrections for the TaxpayerRelief Act of 1997, which was en-acted just last summer. In fact, theHouse’s version of technical correc-tions was attached to the IRS restruc-turing bill, which passed on

November 5. As some of you mayknow, the technical corrections billcontains a provision closing the“loophole” which would permit in-dividuals to avoid the 10 percent pen-alty on premature distributions byfirst rolling over the money to thenewly created Roth IRA.

A less well-known provision inthe technical corrections bill affectshardship distributions from 401(k)plans. Under this provision, hardshipdistributions would no longer be “eli-gible rollover distributions,” and thuswould not be subject to 20 percentmandatory withholding. Accordingto congressional staff, the reason forthis change is to prevent individualsfrom rolling over hardship distribu-tions to an IRA in order to take ad-

vantage of the new early withdrawalpenalty exceptions which apply toIRAs. It is the opinion of congres-sional staff that Congress clearly in-tended to delineate between qualifiedplan and IRA distributions when en-acting the new early withdrawal pen-alty exceptions.

A number of ASPA membershave raised concerns as to how thischange in law would affect the com-petitive balance between 401(k)plans and IRAs. These members areconcerned that availability of theseexceptions for only IRA distributionswill make IRAs more attractive tobusiness owners and their employ-ees. ASPA’s Government AffairsCommittee is reviewing this issue,including evaluating whether ASPAshould pursue legislation extendingthe early withdrawal exceptions toqualified plan distributions.

In the meantime, ASPA hasalready communicated withcongressional and Treasurystaff that if this change in lawwere enacted, the effective dateof this provision must providefor sufficient lead time to allowplan administrators to changetheir systems. Typically, tech-

nical corrections are effective retro-active to the date of the originallegislation — in this case August1997. As you can imagine, such aneffective date would be disastrous forplan administrators since they wouldhave in the meantime been treatinghardship distributions as eligiblerollover distributions. Congressionaland Treasury staff have told ASPAthat they will keep plan administra-tion issues in mind when setting aprospective effective date.

Brian H. Graff, Esq., is executivedirector of ASPA. Before joiningASPA, Graff was legislation counselto the U. S. Congress Joint Commit-tee on Taxation.

ASPA contacted congressionalstaff ... and they agreed tomodify the legislative languageso that it applies to enrolled ac-tuaries (and enrolled agents).

IRS Restructuring Bill Pro-vides Actuary-Client Privilege

C O N T I N U E D F R O M P A G E 1


FOCUS ON ABCS

ABC Subcommittee Formed

ASPA’s Membership Committee has formed a newsubcommittee dedicated solely to ASPA Benefits

Council issues. The subcommittee will develop a long-rangeplan for regional affiliates to address issues such as determin-ing the optimum number of regional affiliate organizations,oversight of the application process for ABC status, andevaluation of national office support resources.

Thursday of February, March, andApril.

AtlantaThe ABC of Atlanta is prepar-

ing for its first informational sessionof 1998. The breakfast meeting, tobe held January 20, will be a roundtable discussion entitled “ABCD-Ethics.” The discussion, addressingethical considerations for actuaries,will be moderated by HenryKnowlton. Atlanta is planning an-other breakfast meeting February 10on Form 5500 changes. It will bepresented by Lewis Siegal.

Central FloridaThe Employee Benefits Council

of Central Florida will feature JaniceM. Wegesin, CPC, QPA, at its Janu-ary 13 meeting. Wegesin, of JMWConsulting in Palatine, Ill., will dis-cuss Form 5500s. On November 11,the EBCCF hosted Craig P.Hoffman, APM, of Corbel in Jack-sonville, Fla. Hoffman presented“Current Regulatory DevelopmentsUnder SBJPA ’96.”

ChicagoOn December 2, the ABC of Chi-

cago held a meeting entitled “Reviewof 1996-1997 Legislation and Re-

lated IRS Pronouncements — Plan-ning for Year-End and Beyond.”Susan J. Daley, Esq., of Altheimer& Gray, and Leslie A. Klein, Esq.,of Sonnenschein Nath & Rosenthal,president of the ABC of Chicago,were the speakers.

Joan Sweeney Appears atDelaware Valley and New

York ABC MeetingsJoan M. Sweeney, chief of the

IRS Northeast Key District Em-ployee Plans and Exempt Organiza-tions Division, has addressed twoASPA Benefits Councils in recentweeks. Sweeney addressed the ABCof Delaware Valley on November 18.The meeting was attended by 118pension professionals. On Decem-ber 9, Sweeney and Cathy Jones,chief of the review staff and CAP co-ordinator for the IRS Northeast KeyDistrict, addressed the ABC of NewYork. The issues discussed includedCAP and walk-in CAP, compliancewith APRSC, current practitionerconcerns, and plan filing issues.Sixty area pension professionals at-tended.

ERISA Outline BookDonated to ABCs

The Education and ExaminationCommittee has donated to each ABCa copy of Sal Tripodi’s recent hit pub-lication The ERISA Outline Book,Volumes I & II. The publication hasbeen praised as the best resourceavailable on the issue. All ABCsshould receive their copies in timefor their January 1998 meetings.

The ABC Subcommittee will becochaired by former ASPA presidentMichael E. Callahan, FSPA, CPC, ofPen Tec Inc., in Cheshire, Conn., whomade the formation of regional af-filiate organizations a central projectof his presidency, and Cynthia A.Groszkiewicz, MSPA, QPA, ofAltman, Kritzer & Levick, PC, of At-lanta, who is involved with ASPA’sfirst ABC in Atlanta. Other subcom-mittee members include: Stephen H.Rosen, MSPA, CPC, of Stephen H.Rosen & Associates, in Haddonfield,N.J.; Leslie A. Klein, APM, ofSonnenschein, Nath & Rosenthal, inChicago; Stephanie D. Katz, CPC,QPA, of CETA Benefit ConsultingGroup, in Bethesda, Md.; and CathyM. Green, CPC, QPA, of CMC, inGlendale, Calif.

ClevelandThe ABC of Cleveland will hold

its first informational meeting onThursday, January 8, 1998. KenMayland, the chief economist ofKeyCorp, in Cleveland, will addressthe luncheon. ASPA’s executive di-rector, Brian H. Graff, Esq., will at-tend and make introductory remarks.The ABC of Cleveland plans to holdinformational sessions on the second


F S P AVictoria C. Pelletiere

M S P ASheri AlsguthMartin BurgerKeith HartsoughJoseph A. NicholsJames E. NorrisRichard J. RoccoFrancis A. TharsiusStephen R. ThomasNachman Yaakov Ziskind

CPCGeorge AnastasakosBrian G. CheneyElizabeth DrakeKellie Dean ElderDebra J. EndersonPaul R. EricksonTina Marie FisherNancy G. GersenyJeffrey J. HeemstraLisa S. HooverLisa M. KecklerDaniel Gordon KellyJennifer Tracey KirbyWylmina E. LoumenaJohn E. LucasThomas W. ReeseMark N. SchneiderJared K. ScottMark D. SwansonHelga J. TowlerAndrew J. TreeceWilliam E. WagnonEdwin C. Walker

Q P AK. Denise AlbrechtAlan E. AshleyNatalie L. BachmanKatharina E. BealJay H. BeltzDenis BurgessElizabeth E. BurnsBetty CarnesRandy O. CaterNatalie L. CernigliaStacy A. ChericoA. Linn ChristensenCarolyn R. CohenCharles W. Coldwell Jr.Steven D. CooperTeresa J. CrancerGeorge H. Curry

Tammy A. DeHaaiKathryn DukeKaren L. DunnTeresa G. EncarnacionJohn A. FeldtHolly M. FlinnNancy G. GersenyMona L. GoodenSuzanne GounarisWilliam J. GraceDebby H. GrayCynthia A. GroszkiewiczAndrew W. Hamilton IIIKaren H. HaskinsMaureen M. HayburnPenni S. JamesCarla L. JohnsMonika A. JonesDebra L. Jonigian-FoxErin S. KagoroAlan J. KaraziaLori A. KoerberDaniel G. KravitzPhilip M. LamersRobin M. LouthenVirginia E. MachamerRichard G. MartinJeannette MawWilliam H. MayerMelinda L. McKendryEdwin L. McNamara Jr.Kelly J. MoenJeffrey N. MolinJanet E. NealKevin P. O’ConnorJoanne R. O’DonnellKellianne C. O’DonnellMary Faith E. O’NeillMerlene K. O’NeillCarole J. PaulsonTimothy F. PeglerJoel J. RadakovitzThomas W. ReeseDavid C. RydingMarilyn RydingMarc D. SalvatoreBei ShengJeanette M. ShipleyAbigail M. StantonChris StencelBonita J. SzymanskiTiffany WardReginald S. WarnerRobert S. WilderJoyce E. Yaccarino

Andrew J. Zollman

APMJeff D. BeanLyn K. BerkebileChristine Burns-FazziAlan H. CampbellKristi CookAmy CoyAlisa CrabbsFernando DelmendoMichael J. GardyaszAndrew R. McCorkleRobert E. MitchellGeorge M. MorrisonGeorge PattersonPaul HarrisonJo Ann PetrozielloBarbara RandRichard SakofskyHoward A. SimonRobin S. VatalaroElizabeth WalshAllan C. WeaverJean R. WebsterNicholas J. WhiteJ. David WiseLynn B. Witte

A f f i l i a t eRegina AdamsPatricia A. ArpeyK. Marie S. AshtonDawn M. AventoBeverly A. BaileyBarbara A. BarvincakJames M. BerryAudrey R. BinghamLarry D. BoeschAudra BoltionLaura S. BradyStacie L. BrassMary BresnahanMike E. BristerJohn D. Bryane CPARebaccah L. CardilloArthur G. Cathcart Jr.James H. ChaneyDaniel CharnasChristopher M. ChastainJeffrey ChotinerAndrew CiapaloSharon A. ClarkeKaren R. Voth ClaypoolWilliam W. CollinsFrancis M. Conway

Melissa CowanKelly CullitonJean DaileyEdward DavisJoy DeStephanoBlake G. EarlDeborah J. EbnerKaren S. EustisMartin FalkJeff FloomPatrick J. GallagherMark C. GardnerLori S. GibsonCarol GolichnikDeborah J. GreggMichelle L. GriffinLisa M. GrimmerMartin GronerLisa GrumbineVeronica Heffernan GunnRichard L. HarshmanRichard P. HartzellChristine M. Haufler-MartinWilliam J. Higgins Jr.Beverly A. HilemanAmi HillSusan F. HolbrookPeg HornJimmy HouptJonathan S. HowerWilliam HurleyDebra G. HynsonMathew W. JekotElizabeth A. JohnsonM. Diann JohnsonJeri JolleyMichael J. KingJames Robert KlomparensLeslie A. KoenigSevan W. KrikorianMishelle K. LangPaul LauWilliam T. LeonardCharles T. LloydLorraine LordDavid LustyCharles E. LynchRonald MaduraKen MaherLinda S. MalawyMichelle M. ManginoKathleen MatthewsMarsha A. MatthewsMarvin M. MatusCynthia D. McDaniel

Brenda C. McGuireDiane L. McKoyJoan I. McWilliamsDennis A. MehringerSusan MinerRobert MiottoGrey C. MitchellMarcus E. MorandiJeff R. MowerKimberly A. MusickKory NgoAnita O’ConnorJerri J. OlsonDavid A. PanellaRobert ParmelyKimberly S. PennyFabio M. PerlaDennis PindiakGus A. PlatasMichael D. PoppJane G. PorterWilliam F. PorterVictoria J. PrengerRuth ProsserDianna A. RayKelli M. ReedJennifer L. RichterGina M. RossoLin RostromMaricela SchmitzSteven SchmutterMark A. SchwabSusan K. SeagravesKevin ShipleyJeffrey M. ShularDawn SmithMonica StellatoMichael A. TeichmanMarisa TellerMarvin S. TeplitzPaul ThomsonMarcia J. ThorpKathleen TompkinsMichele T.D. TranTed J. TriskaDorthy M. TzumasBrett WalkerKara E. WalshDavid C. WaltersLeslie WaltersBrian WildmanEvan W. WoollacottTim WrightEarlene L. YoungFredric H. Youngstrand

W E L C O M E N E W M E M B E R SPlease welcome and congratulate ASPA’s new members and recent designees, August - December 1997


FOCUS ON ASPA PERF

Martin Rosenberg AcademicAchievement Awardby Scott D. Miller, FSPA, CPC

Each year, the ASPA Pension Education and Research Foundation (ASPA PERF) proudly presents

the Martin Rosenberg Academic Achievement Award torecognize the achievements of exceptional examination can-didates. The award is presented to honor the memory of thelate Martin Rosenberg, FSPA. Rosenberg was a valuedmember of ASPA, serving as an officer and a member of theboard of directors. In addition, he served on the Educationand Examination Committee for nearly 10 years.

In order to be considered for theaward, a candidate must receive ascore of 9 on one of the followingexaminations: C-1, C-2(DB),C-2(DC), C-3, C-4, or A-4. Recipi-ents of the award are selected basedupon their total examination score aswell as their examination perfor-mance, as it compares to other can-didates’ scores. All award winnersreceive a plaque, a letter of congratu-lations from the committee, and an-nouncement of their achievement in

PERF, and the ASPA ConferenceCommittee has agreed to waive theannual conference fee for those hon-ored individuals.

Congratulations to Amy Wicker,who was presented with the MartinRosenberg Academic AchievementAward at the 1997 ASPA AnnualConference for her performance onthe C-1 examination for the 1996-97examination cycle. We look forwardto seeing this year’s winners at theAnnual Conference in October 1998— Good luck!

Scott D. Miller, FSPA, CPC, is presi-dent of Actuarial Consulting GroupInc. in South Salem, N.Y. Miller isvice chairman of ASPA PERF, amember of ASPA’s board of direc-tors, and serves as the examinationchair of ASPA’s Education and Ex-amination Committee.

Information Resources CatalogAs part of ASPA’s desire to provide meaningful benefits for our

membership, we have compiled a list of the books and referencematerial important to every pension professional. The InformationResources Catalog provides a quick and easy way to determine whichbooks are available through ASPA.

There are numerous texts and reference books that every pen-sion practitioner needs on his or her shelves. The catalog is orga-nized by subject matter to make the material you need easy to find.Also, check out our prices!

Please take a minute to look at the catalog enclosed for ASPAmembers and order the reference books that you need. Not onlymay it save you money, but your order also helps to support theservices ASPA provides to its membership.

their local papers as well as in a num-ber of ASPA publications.

For the 1997-98 examinationcycle, ASPA PERF has decided toprovide an added benefit to the topaward winners for each examination.In addition to receiving the abovestated benefits, top award winners areinvited to attend the 1998 ASPAAnnual Conference where they willbe recognized for their outstandingachievements. Hotel costs for theconference will be paid by ASPA

Martin Rosenberg AcademicAchievement Award winner AmyWicker, (right) with Carol R.Sears, FSPA, CPC, general chairof ASPA’s Education and Exami-nation Committee


* Exam candidates earn 20 hours of ASPA continuing education credit forpassing exams, 15 hours of credit for failing an exam with a score of 5 or6, and no credit for failing with a score lower than 5.

† ASPA offers these courses as an educational service for students who wishto sit for examinations which ASPA cosponsors with the Society of Actuariesand the Joint Board for the Enrollment of Actuaries. In order to preserve theintegrity of the examination process, measures are taken by ASPA to preventthe course instructors from having any access to information which is notavailable to the general public. Accordingly, the students should understandthat there is no advantage to participation in these courses by reason that theyare offered by a cosponsor of the examinations.

1998 Business

Leadership Conference

The 1998 Business LeadershipConference, for ASPA membersonly, will be held May 3-6, 1998, atthe Broadmoor hotel in ColoradoSprings, Colo.

Winning customersthrough quality

The 1998 BLC theme is WinningCustomers through Quality. Fea-tured presentations that embody thattheme include “How to Implementthe Malcolm Baldrige Techniquesand Self-Testing Methods,” “Mea-suring and Managing Customer Sat-isfaction,” “CEO Workshop andTechnical Took Kit;” and “How toHire Great People Every Time withPerformance-Based Hiring — TheNew Competitive Advantage.”

Highest rated peer net-working groups

Attendees share management in-formation in interactive peer net-working groups that matchparticipants by size of their firm, thenumber of plans they administer, andby their revenue bases. These ses-sions give participants the chance totalk honestly and openly with othersin similar situations. The peer groupswere chosen by the majority of re-spondents as the best overall part ofthe 1997 conference.

The Broadmoor, a grandresort hotel

The Broadmoor has old-worldcharm with sculpture grounds, lumi-nous buildings, and lavish accommo-dations. Participants will delight inthe moderate climate. Sunny daysand clear nights are the spring norm,with flawless blue skies and the clar-ity of Colorado air. The Broadmoorand Colorado Springs are conve-niently located in the center of theUnited States.

C A L E N D A R O F E V E N T S

ASPACE Credit

1998April 17-18 A-1[EA-1(A)] course — Washington, D.C.† 15 credits

April 19-20 A-2[EA-1(B)] course — Washington, D.C.† 15 credits

April 25-26 A-1[EA-1(A)] course — Chicago† 15 credits

April 27-28 A-2[EA-1(B)] course — Chicago† 15 credits

April 27-28 Midstates Benefits Conference — Chicago 15 credits

May 1-2 A-1[EA-1(A)] course — Los Angeles† 15 credits

May 3-4 A-2[EA-1(B)] course — Los Angeles† 15 credits

May 1 or June 19 401(k) Testing Rules/Cross-Testing Workshop —Philadelphia 8 credits

May 3-6 Business Leadership Conference. —Colorado Springs, Colo.

May 8 or 15 401(k) Testing Rules/Cross Testing Workshop — Orlando, Fla. 8 credits

May 11 401(k) Testing Rules/Cross Testing Workshop — Cleveland 8 credits

May 18 Jointly sponsored examinations A-1[EA-1(A)]and A-2[EA-1(B)]

June 3 C-1, C-3, and C-4 examinations *

June 4 C-2(DC) examination *

June 5 C-2(DB) and HW-1 examinations *

June 8 401(k) Testing Rules/Cross Testing Workshop — New Orleans 8 credits

June 12 Northeast Key District EmployeeBenefits Conference — White Plains, N.Y. 7 credits


PIX DIGEST — THREAD OF THE MONTH

Excess Profit-SharingContributions and APRSC

PIX BBS support and registration informationvoice : (805) 683-4334 • fax: (805) 683-0369

This thread discusses various op-tions for handling a contribution to aprofit-sharing plan in excess of theInternal Revenue Code section 404 de-ductible limit.

The plan involved included lan-guage that limits the contribution tothat which is deductible under IRC404. So, what happens when a contri-bution that exceeds that amount ismade to the plan prior to the end ofthe year? What, if any, effect does theInternal Revenue Service APRSC pro-gram have in determining how to dealwith the excess contribution?

Some of the participants in thethread believe that since the plan lan-guage limits the contribution to thedeductible amount, then making a con-tribution in excess of that amount is aviolation of the terms of the plan.Since the APRSC program is supposedto let plan administrators correct op-erational violations, it can be arguedthat the excess contribution should bereturned to the employer.

Other participants were adamantthat the plan language limiting the con-tribution to the deductible limit ismeaningless and that any contributionmade to the plan during the year mustbe allocated to the participants, thelimitation notwithstanding.

There was no final resolution ofthe discussion. It generated enoughinterest that the question was posed tothe IRS during the Q&A session at the1997 ASPA Annual Conference. TheIRS personnel gave their answer, say-ing that they believed the contributionshould be allocated. However, the spe-cific issue about whether the excesscontribution violated the terms of theplan and the application of APRSCwas not discussed due to a lack of time.

To read the entire 87-message dis-cussion, download the threadxsps2.fsg.

Combined DB-DC Plans andthe 25 Percent Deduction Limit

This thread discusses the possibil-ity of breaking up the coverage of anexisting defined benefit-profit-sharingplan combination into two mutuallyexclusive groups in order to avoid the25 percent of compensation combineddeduction limit.

The case discussed involved a fa-ther-and-son-owned business. Theidea is to amend the defined benefitplan to cover the father and one otheremployee, while the profit-sharingplan covers the son and the other em-ployee. Consideration must be givento the new 401(a)(26) rules applicableto defined benefit plans, 410(b) cov-erage (either aggregating the plans ornot), and, of course, nondiscrimination.

The unresolved issue is what con-stitutes overlapping coverage of theplans and invokes the 25 percent limit.The son has an accrued benefit in theplan, and though it may be amendedto exclude him in the future, his previ-ously accrued benefit is still in the planand not distributable unless the planterminates. Conversations with theIRS in preparation for the Annual Con-ference indicate that they don’t thinkthis is overlapping coverage, hence the25 percent limit would not apply.However, most participants of thethread are uncomfortable without writ-ten IRS guidance.

Download the thread 2plans.fsgfor the whole discussion.

TRA ’97 and Roth IRAsNew legislation begets new mes-

sage threads. The new Roth IRAs aregetting a lot of attention. Should yourclients consider converting their IRAsto Roth IRAs? What about taking a dis-tribution from a qualified plan, rollingit to an IRA, then electing to convert?

Roth IRAs are “backloaded,” withno current tax deduction, but no taxa-tion of distributions if certain require-ments are met. Like much of TRA ’97however, Roth IRAs are “means-tested.” To be eligible to contributeor elect to convert an existing IRA,adjusted gross income must be belowdesignated amounts.

To see what PIXers are sayingabout Roth IRAs, download the fileroth1.fsg.

New PIX WindowsVersion Released

The exclusive PIX software sys-tem, WOD, is now available for Win-dows. Affectionately known asWODWin, it is a fully Windows-basedmessage reader that provides all thefunctionality of the DOS-based sys-tem, plus all the Windows features youhave come to depend on, and new fea-tures as well. WODWin is availableon CD-ROM, floppy disks, or avail-able for download from the Internet.

Along with the rollout ofWODWin, PIX is also pleased to an-nounce that PIX is available via Inter-net E-mail. Have a file of each day’smessages E-mailed right to your E-mail box. Using PIX has never beeneasier. Call today!


Please strip these in on the new genericmasthead. Match the position on prior is-sues.

Vol. XXVII, Number 6

November-December 1997

volume xxvii, number 1 januar y-februar y 1997 i ssue … · which routinely results in the...

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